THE FCC’S TRANSACTION REVIEWS AND FIRST AMENDMENT RISKS BRENT SKORUP* & CHRISTOPHER KOOPMAN** INTRODUCTION In the run-up to the 2004 Presidential election, Pulitzer Prize- and Peabody Award-winning journalist, Carlton Sherwood, made a film featuring Vietnam POWs that cast Democratic nominee Senator John Kerry in an unfavorable light.1 The Sin- clair Broadcast Group, which owns TV stations scattered around the country, announced plans to air the forty-minute film but received significant criticism because of the timing be- fore an election. Democratic politicians complained to the Fed- eral Communications Commission about the film’s lack of bal- ance and advocacy groups vowed a multi-year regulatory challenge to Sinclair’s airwave license renewals.2 The Boston Globe and New York Times editorial pages requested the FCC investigate Sinclair for countenancing to air the film.3 MSNBC television host Deborah Norville captured the mood when she asked a Sinclair vice president on air, “Why would Sinclair Broadcasting, which has a license from the FCC, risk that very, very precious license by going forward with a program like * Research Fellow, Mercatus Center at George Mason University. He has an eco- nomics degree from Wheaton College and a law degree from the George Mason University School of Law. The Authors extend thanks to Ted Bolema and two anonymous reviewers for helpful comments on earlier drafts. ** Research Fellow, Mercatus Center at George Mason University; Adjunct Profes- sor, George Mason University School of Law. LL.M., George Mason University School of Law, 2014; J.D., Ave Maria School of Law, 2012. 1. STOLEN HONOR: WOUNDS THAT NEVER HEAL (Red, White, and Blue Produc- tions 2004). This production should not be confused with the advocacy organiza- tion Swift Boat Veterans for Truth, a different 2004 controversy involving veter- ans’ criticism of Senator Kerry. 2. Bill Carter, Risks Seen for TV Chain Showing Film about Kerry, N.Y. TIMES (Oct. 18, 2004), http://www.nytimes.com/2004/10/18/business/media/risks-seen-for-tv- chain-showing-film-about-kerry.html [https://perma.cc/Q6JD-K9K6]. 3. Editorial, Sinclair’s Slander, BOS. GLOBE (Oct. 15, 2004), http://www.boston.com/news/globe/editorial_opinion/editorials/articles/2004/10/1 5/sinclairs_slander/ [https://perma.cc/9M4Z-FA6Z]; Editorial, Dangerous Territory, N.Y. TIMES (Oct. 15, 2004), http://www.nytimes.com/2004/10/15/opinion/ dangerous-territory.html?_r=0 [https://perma.cc/UH6H-4PSZ]. 676 Harvard Journal of Law & Public Policy [Vol. 39 this?”4 Former FCC Chairman Reed Hundt similarly asked Sin- clair executives, “Why should a broadcaster keep its licenses if it behaves in this manner?”5 Sinclair got the message. Financial analysts and FCC staff pre- dicted the controversy posed political and financial risks to Sin- clair and other FCC-licensed stations—what one analyst report called “the Sinclair payback provision”6—and Sinclair stock val- ue quickly dipped 17%.7 Within days, Sinclair abruptly backed off and chose to broadcast only four minutes of the film.8 The Sinclair episode illustrates the power the FCC holds over some media outlets and gives a glimpse into how political ac- tors and activists are able to channel the FCC’s regulatory pro- cess to chill unwanted speech. Quite simply, many U.S. firms that carry and distribute speech, like Sinclair, must remain in the FCC’s good graces—via license renewals and approvals of license transfers—to operate. Over the last twenty years, the FCC has increasingly used its leverage during licensing pro- ceedings as an opportunity to engage in ad hoc merger review that substitutes for formal rulemaking. Through license renew- als and—the focus of this Article—through transaction approv- 4. Deborah Norville Tonight, Sinclair Controversy, MSNBC (Oct. 21, 2004), http://www.nbcnews.com/video/msnbc-news/6303047#6303047 [https://perma.cc/M8BA-ZHL7]. 5. Josh Marshall, Yesterday Former FCC Chairman, TALKING POINTS MEMO (Oct. 11, 2004), http://talkingpointsmemo.com/edblog/--97479 [http://perma.cc/C3CU- UHEE] (reproducing Reed Hundt’s letter). 6. Bill Carter, Risks Seen for TV Chain Showing Film about Kerry, N.Y. TIMES (Oct. 18, 2004), http://www.nytimes.com/2004/10/18/business/media/risks-seen-for-tv- chain-showing-film-about-kerry.html [https://perma.cc/Q6JD-K9K6]. 7. Sinclair revises Anti-Kerry Broadcast, CNN Money (Oct. 20, 2004), http://money.cnn.com/2004/10/19/news/midcaps/sinclair/ [https://perma.cc/S8TY- MEHJ]. 8. Bill Carter & Scott Shane, Viewers Get Only a Peek of a Movie Chiding Kerry, N.Y. TIMES (Oct. 23, 2004), http://www.nytimes.com/2004/10/23/politics/campaign/ viewers-get-only-a-peek-of-a-movie-chiding-kerry.html?_r=0 [https://perma.cc/46X2-G6XN]. The Republican FCC chairman at the time, Mi- chael Powell, refused to intervene and exercise prior restraint, citing agency prec- edent and First Amendment concerns. FCC won’t block airing of anti-Kerry film, NBC NEWS (Oct. 14, 2004), http://www.nbcnews.com/id/6249909/ns/politics/t/fcc- wont-block-airing-anti-kerry-film [https://perma.cc/R7FJ-2T35]. Nevertheless, the possibility of Kerry winning the close election and nominating a new FCC chair- man a few months later contributed to Sinclair’s stock decline. As one major Sin- clair shareholder noted, “Those guys at Sinclair better watch out if Kerry is elect- ed.” Carter, supra note 6. No. 3] FCC First Amendment Risks 677 als, the agency allows special interest groups to influence me- dia content, business models, and operations. Neither the FCC nor the courts have put meaningful limits on what the FCC can extract during license transfers, leading to arbitrary and unpredictable results.9 Today, regulated compa- nies—including broadcast TV and radio, satellite TV and radio, cable TV, and Internet service providers—are the primary pro- ducers and distributors of mass media and publications. In- creasingly, the FCC extracts nominally voluntary concessions from firms—including programming decisions, hiring practic- es, and “net neutrality” compliance—via coercive conditions to transaction approvals. In many cases, the FCC is legally barred from enforcing or unwilling to enforce these policies through the normal regulatory process.10 Not much has changed in the fifteen years since Bryan Tramont, then-Legal Advisor to Commissioner Harold Furchtgott-Roth, wrote that “procedural loopholes and cir- cumstance create opportunities for the Commission to oper- ate free of the discipline imposed by the statute and adminis- trative procedure” during license transfer approvals and consent decrees.11 If anything, the severity of the problem may be getting worse.12 Scholars criticize lawmakers’ “jaw- 9. Novel Procedures in FCC License Transfer Proceedings: Hearing Before the Sub- comm. on Comm. and Admin. Law of the H. Comm. on the Judiciary, 106th Cong. 11–12 (1999) (statement of Harold Furchtgott-Roth, Comm’r, Fed. Commc’ns Comm’n) (“Agency decisions regarding which license transfers to review . are entirely ad hoc . .”). 10. Id. (“[T]he Commission requires companies to do certain things—things that it could not for lack of statutory authority require outright in a rulemaking—as a quo for the quid of receiving a license.”). 11. Bryan N. Tramont, Too Much Power, Too Little Restraint: How the FCC Expands Its Reach Through Unenforceable and Unwieldy “Voluntary” Agreements, 53 FED. COMM. L.J. 49, 52 (2000), http://www.repository.law.indiana.edu/cgi/ viewcontent.cgi?article=1260&context=fclj [https://perma.cc/L7XD-WDUP]. 12. Christopher S. Yoo, Merger Review by the Federal Communications Commission: Comcast-NBC Universal, 45 REV. INDUS. ORG. 295, 312 (2014) (noting that since 2004, “conditions have become increasingly common features of [FCC] merger clearances”); see also Derek E. Bambauer, Against Jawboning, 100 MINN. L. REV. 51, 128 (2015) (“Jawboning of Internet intermediaries is increasingly common, and it operates beneath the notice of both courts and commentators.”); T. RANDOLPH BEARD ET AL., PHOENIX CENTER FOR ADVANCED LEGAL AND ECONOMIC PUBLIC POLICY STUDIES, PHOENIX CENTER POLICY PAPER NO. 49, ERODING THE RULE OF LAW: REGULATION AS COOPERATIVE BARGAINING AT THE FCC 5 (2015), 678 Harvard Journal of Law & Public Policy [Vol. 39 boning”—a term for informal regulation and threats using dubious legal authority—of Internet and media companies outside of transparent regulation.13 Professor Derek Bam- bauer notes that “[i]nformal enforcement . cloaks what is in reality state action in the guise of private choice,”14 and such “regulation by transaction” has far-reaching legal and constitutional effects. Once an acquisition or license transfer is before the Com- mission, the applicants and the FCC engage in a secretive bargaining over what “voluntary” commitments the appli- cants must make to remain in the agency’s good graces.15 These negotiated agreements are made pursuant to a consent decree or to gain transaction approval and are, practically speaking, not appealable.16 These circumstances eviscerate norms of good governance and rule of law and may also be unconstitutional because of the amount of discretion the FCC has over speakers. The FCC’s transaction practices pose the speech infringement risks the Supreme Court warned of in a 1988 case, City of Lakewood v. Plain Dealer Publishing Co., regarding a city’s licensing of news- paper racks: “the mere existence of the licensor’s unfettered discretion, coupled with the power of prior restraint, intimi- http://www.phoenix-center.org/pcpp/PCPP49Final.pdf [https://perma.cc/8XGZ- 2HLL]. 13. The term derives from the Biblical story of Samson, who killed thousands of men with a seemingly weak instrument, a donkey’s jawbone. See Judges 15:14–17. 14. Bambauer, supra note 12, at 65. 15. See BEARD, supra note 12, at 5. 16. In theory, the transaction applicants could submit to a hearing with an ad- ministrative law judge.